Working Capital refers to that part of the firm's capital, which is required for financing short-term or current assets such as cash, debtors and inventories. In simpler words, WC is th funds deployed for managing business operations

What is the definition of Cash Credit ?

It is a running account facility which is allowed to go into a debit balance upto the limit approved by the bank. It is subject to drawing power against stocks and debtors which is determined by the bank at regular intervals . The limit is worked out based on the working capital cycle of the borrower.

Cash credit is a product which caters to working capital requirement such as inventory, Books Debts etc.

What is the nature of cash credit ?

This is a fund Base facility.

Why will any business require this ?

Every business entity needs to make a match between the time period for which the funds are raised and the manner in which they are utilized. This is necessary to ensure that there is some sort of asset liability mismatch ant there are no problems in paying back the amounts borrowed. Every business has a short term need to meet working capital requirements and one of the routes in which this can be tackled is through the use of cash credit facility

What is the repayment schedule like?

Unlike normal loan there is no fixed rescheduled structure for a cash credit. This reduces the pressure for a borrower because the no sum that has to be paid each month. Thus, unlike a loan the figure can be repaid as and when any amount is available which will mean that the borrower has the facility to replay when he/she has the necessary funds and his/her position is such that it allows for repayment.


What is Letter of credit:

It an arrangement whereby a bank acting at the requires of its customer, undertakes to pay a third party at a given date against presentation of documents as stipulated in the LC.

What is Bank Guarantee:

Bank guarantee is a guarantee given by the bank on behalf of its client to the beneficiary guaranteeing the performance of the applicant It is given against an underlying contract.

Types of BG:

  •     Performance BG
  •     Financial BG